The following discussion is intended to highlight significant changes in the Company's financial position and results of operations for the thirty-nine weeks ended October 3, 2009. The interim financial statements and this Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the Consolidated Financial Statements and Notes thereto for the fiscal year ended January 3, 2009 and the related Management's Discussion and Analysis of Financial Condition and Results of Operations, both of which are contained in the Company's Annual Report on Form 10-K for the fiscal year ended January 3, 2009.

Certain statements set forth in this discussion and analysis of financial condition and results of operations are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. They use such words as "may," "will," "expect," "believe," "plan" and other similar terminology. These statements reflect management's current expectations regarding future events and operating performance and speak only as of the date of this release. These forward-looking statements involve a number of risks and uncertainties, and actual future results and trends may differ materially depending on a variety of factors, including changing customer preferences, lack of success of new products, loss of customers, competition, increased raw material prices, problems associated with foreign sourcing of parts and products, changes within our industry segments and in the overall economy, litigation and legislation. In addition, terrorist threats and the possible responses by the U.S. government, the effects on consumer demand, the financial markets, the travel industry, the trucking industry and other conditions increase the uncertainty inherent in forward-looking statements. Forward-looking statements reflect the expectations of the Company at the time they are made, and investors should rely on them only as expressions of opinion about what may happen in the future and only at the time they are made. The Company undertakes no obligation to update any forward-looking statement. Although the Company believes it has an appropriate business strategy and the resources necessary for its operations, future revenue and margin trends cannot be reliably predicted and the Company may alter its business strategies to address changing conditions.

In addition, the Company makes estimates and assumptions that may materially affect reported amounts and disclosures. These relate to valuation allowances for accounts receivable and for excess and obsolete inventories, accruals for pensions and other postretirement benefits (including forecasted future cost increases and returns on plan assets), provisions for depreciation (estimating useful lives), uncertain tax positions, and, on occasion, accruals for contingent losses.

Overview

Sales in the third quarter of 2009 decreased 19% compared to the third quarter of 2008, as a result of the overall weaker economy in the 2009 period. In the third quarter of 2009 Industrial Hardware sales decreased 19%,

Gross margin as a percentage of sales for the three months ended October 3, 2009 was 20% compared to 16% in the comparable period a year ago. The increase in the gross margin was primarily the result of price increases to customers, the mix of products sold, sales of new products and cost reductions.

Sales in the first nine months of 2009 decreased 18% compared to the prior year period, also as a result of weakness in the general economy. Sales decreased in the first nine months of 2009 in the Industrial Hardware segment by 19% and by 26% in the Security Products segment compared to the prior year period. The decreases were primarily due to reduced demand for our products in the majority of the markets we serve as a result of the continuing soft worldwide economic conditions. Sales increased in the first nine months of 2009 in the Metal Products segment by 6% compared to the prior year period, primarily a result of increased sales volume of our existing mine roof products to the U.S. mining industry in the current year.

Gross margin as a percentage of sales for the nine months ended October 3, 2009 was 18% and was comparable to the prior year period. The Company was able to achieve a gross margin that was comparable to the prior year period, despite the 18% decline in sales volume compared to the prior period, due to a combination of price increases to customers, the mix of products sold, sales of new products and cost reductions.

Raw material prices have rolled back from the dramatic increases experienced during 2008. We believe this may be a result of the worldwide economic decline reducing demand. Currently, there is no indication that the Company will be unable to obtain supplies of all the materials that it requires. Raw material costs could negatively impact future gross margins if raw material prices rise faster than the Company's ability to recover those increases through either price increases to our customers or cost reductions.

Cash flow from operations in the first nine months of 2009 has improved compared to the same period in 2008. Cash flow from operations along with controlling discretionary expenditures, should be sufficient to enable the Company to meet all its existing obligations and continue its quarterly dividend payments.

A more detailed analysis of the Company's results of operations and financial condition follows:

Results of Operations



The following table shows, for the periods indicated, selected line items from
the condensed consolidated statements of operations as a percentage of net
sales, by segment:



                                      Three Months Ended October 3, 2009
                                     Industrial   Security     Metal
                                       Hardware   Products  Products  Total
Net sales                                100.0%     100.0%    100.0% 100.0%
Cost of products sold                     75.5%      75.1%    101.1%  79.7%
Gross margin                              24.5%      24.9%     -1.1%  20.3%
Selling and administrative expense        15.6%      17.6%     10.4%  15.5%
Operating profit/(loss)                    8.9%       7.3%    -11.5%   4.8%


                                    Three Months Ended September 27, 2008
                                     Industrial   Security     Metal
                                       Hardware   Products  Products  Total
Net sales                                100.0%     100.0%    100.0% 100.0%
Cost of products sold                     81.9%      76.9%    110.9%  84.2%
Gross margin                              18.1%      23.1%    -10.9%  15.8%
Selling and administrative expense        12.5%      14.9%      7.1%  12.7%
Operating profit/(loss)                    5.6%       8.2%    -18.0%   3.1%

The following table shows the amount of change for the third quarter of 2009 compared to the third quarter of 2008 in sales, cost of products sold, gross margin, selling and administrative expenses and operating results, by segment (dollars in thousands):

                                    Industrial  Security    Metal
                                      Hardware  Products Products     Total
Net sales                            $ (2,781) $ (3,179)  $ (460) $ (6,420)

Volume                                  -23.7%    -35.2%    -9.8%    -26.3%
Prices                                   -0.1%     12.5%     1.1%      5.3%
New products                              5.1%      0.6%     0.0%      2.4%
                                        -18.7%    -22.1%    -8.7%    -18.6%

Cost of products sold                $ (3,059) $ (2,653)  $ (983) $ (6,695)
                                        -25.1%    -24.0%   -16.9%    -23.0%

Gross margin                             $ 278   $ (526)    $ 523     $ 275
                                         10.3%    -15.8%    91.1%      5.1%

Selling and administrative expenses       $ 29   $ (166)    $ 129     $ (8)
                                          1.6%     -7.7%    34.5%     -0.2%

Operating results                        $ 249   $ (360)    $ 394     $ 283
                                         29.8%    -30.5%    41.7%     26.5%

The following table shows, for the periods indicated, selected line items from the condensed consolidated statements of income as a percentage of net sales, by segment:

                                      Nine Months Ended October 3, 2009
                                     Industrial  Security     Metal
                                       Hardware  Products  Products  Total
Net sales                                100.0%    100.0%    100.0% 100.0%
Cost of products sold                     76.9%     79.2%    102.5%  82.5%
Gross margin                              23.1%     20.8%     -2.5%  17.5%
Selling and administrative expense        15.4%     18.1%      8.8%  15.2%
Operating profit                           7.7%      2.7%    -11.3%   2.3%


                                    Nine Months Ended September 27, 2008
                                     Industrial  Security     Metal
                                       Hardware  Products  Products  Total
Net sales                                100.0%    100.0%    100.0% 100.0%
Cost of products sold                     79.4%     77.1%    101.4%  81.6%
Gross margin                              20.6%     22.9%     -1.4%  18.4%
Selling and administrative expense        13.1%     15.0%      7.8%  13.1%
Operating profit                           7.5%      7.9%     -9.2%   5.3%

The following table shows the amount of change for the first nine months of 2009 compared to the first nine months of 2008 in sales, cost of products sold, gross margin, selling and administrative expenses and operating profit, by segment (dollars in thousands):

                                    Industrial   Security    Metal
                                      Hardware   Products Products      Total
Net sales                            $ (8,381) $ (11,392)    $ 856 $ (18,917)

Volume                                  -32.9%     -32.5%    -0.4%     -28.1%
Prices                                    0.8%       5.6%     3.0%       3.1%
New products                             13.6%       0.7%     3.2%       6.7%
                                        -18.5%     -26.2%     5.8%     -18.3%

Cost of products sold                $ (7,591)  $ (8,098)  $ 1,035 $ (14,654)
                                        -21.1%     -24.2%     6.9%     -17.3%

Gross margin                           $ (790)  $ (3,294)  $ (179)  $ (4,263)
                                         -8.5%     -33.0%   -84.7%     -22.3%

Selling and administrative expenses    $ (253)    $ (718)    $ 228    $ (743)
                                         -4.3%     -11.0%    19.8%      -5.5%

Operating profit                       $ (537)  $ (2,576)  $ (407)  $ (3,520)
                                        -15.8%     -74.7%   -30.0%     -64.3%

Industrial Hardware Segment

Net sales in the Industrial Hardware segment were down 19% in both the third quarter and the first nine months of 2009 compared to the prior year periods. The reduced sales in both the third quarter and nine month period reflected a decrease in sales of existing products to the vehicular markets in 2009 compared to the same period in 2008. The reductions in both periods were lessened by sales increases from new product introductions primarily to the military market. All of the new products were developed internally and included an inside handle assembly, a roof center case assembly, a slam bolt assembly, a turret hatch kit, a crawler door and various handles and latches. The Industrial Hardware segment continues to develop new latching systems for the military and has experienced an increase in orders for military projects. Sales of sleeper cabs to the Class 8 truck market improved slightly at the end of the third quarter and are predicted to increase through the end of 2009 as the result of increased orders for sleeper cabs for military and commercial vehicles.

Cost of products sold for the Industrial Hardware segment decreased 25% in the third quarter and 21% in the first nine months of 2009 compared to the prior year periods. The primary reason for this reduction was due to lower volume of sales in the 2009 periods and lower payroll and payroll related charges than the prior year.

Gross margin as a percent of net sales increased to 25% in the third quarter of 2009 from 18% in the 2008 quarter. Gross margin in the first nine months of 2009 increased slightly to 23% from 21% in 2008. The improvement in gross margin resulted from lower raw material costs.

Selling and administrative expenses increased 2% for the third quarter and decreased 4% in first nine months of 2009 compared to the prior year periods. The increase in the third quarter was due to increases in advertising and travel expenses. The decrease in the first nine months of 2009 was due to primarily to a decrease in payroll and payroll related charges.

Security Products Segment

Net sales in the Security Products segment decreased 22% in the third quarter and 26% in the first nine months of 2009 compared to the 2008 periods. The decrease in sales in both the third quarter and first nine months of 2009 in the Security Products segment is primarily the result of lower sales volume of existing products across many of our markets as a result of soft economic conditions. Sales of new products are reflected across most of the markets we service and included a variety of new locks.

Cost of products sold for the Security Products segment was down 24% in both the third quarter and the first nine months of 2009 compared to the same periods in 2008. The decrease in cost of products sold was due to the decrease in sales volume and the mix of products sold compared to the prior year periods, as well as decreases in raw materials and payroll and payroll related charges. This segment experienced increases in new product development, such as a digital coin drop meter, a contactless smartcard system and an energy recovery system.

Gross margin as a percentage of sales in the third quarter increased from 23% in 2008 to 25% in 2009, while gross margin in the first nine months decreased from 23% in 2008 to 21% in the 2009 period. The improvement in the third quarter of 2009 compared to the prior year period is due to decreased payroll and payroll related charges in the 2009 quarter. The decrease in the first nine months of 2009 was primarily the result of higher engineering and research and development costs and the mix of products sold as compared to the prior year period.

Selling and administrative expenses decreased 8% in the third quarter and 11% in the first nine months of 2009 from 2008 levels. The decreases in both periods were primarily due to reductions in payroll and payroll related charges, lower sales commission payments in the 2009 period based on the lower sales volume, and lower advertising and travel expenses. These cost reductions were offset to some extent by higher costs associated with uncollectible accounts receivable resulting from the overall weak economy.

Metal Products Segment

Net sales in the Metal Products segment were down 9% in the third quarter and up 6% in the first nine months of

2009 as compared to the prior year periods. Sales of mining products were up 11% in the third quarter and 17% in the first nine months of 2009 compared to the prior year periods. The increase in sales of mining products in 2009 was driven by increased demand in the U.S. mining market that occurred primarily in the first and third quarters of 2009. Sales of contract castings decreased 34% in the third quarter and 25% in the first nine of 2009 from the prior year levels. The decrease in sales of contract casting products was the result of the continued soft economic conditions. New product sales included a crater head used in underground mining.

Cost of products sold decreased 17% in the third quarter and increased 7% in the first nine months of 2009 compared to the same periods in 2008. The third quarter decrease was due to lower cost for utilities, payroll and payroll related charges, equipment maintenance, and supplies and tools, in addition to the costs associated with the lower volume of sales in the 2009 period. The increase in the first nine months of 2009 compared to the prior year period is attributable to the product mix and production difficulties experienced in 2009.

Gross margin as a percentage of net sales improved from -11% to -1% in the third quarter of 2009 and decreased from -1% to -3% for the first nine months of 2009 compared to the 2008 periods. The improvement in the third quarter is primarily due to lower costs for utilities and equipment maintenance, the mix of products produced and price increases to our customers. The decrease in margin in the first nine months of 2009 compared to the prior year period is due to production difficulties experienced in 2009.

Selling and administrative expenses were up 35% in the third quarter and 20% in the first nine months of 2009 compared to the same periods in 2008. The increases were due to increases in payroll and payroll related charges and travel expenses.

Other Items

Interest expense decreased 11% in the third quarter and 16% in the first nine months of 2009 compared to the prior year period primarily due to the decreased level of debt.

Other income was not material to the financial statements.

Income taxes reflected the change in the earnings level. The effective tax rate in the third quarter of 2009 was 19% compared to -7% in the third quarter of 2008. The effective tax rate for the first nine months of 2009 was 49.5% compared to 27% in the first nine months of 2008. The higher effective rate in both of the 2009 periods was the result of the mix of U.S. and foreign income, as well as the repatriation of earnings without an offsetting foreign tax credit.

Liquidity and Sources of Capital

The Company generated $13.8 million from operations during the first nine months of 2009 compared to $5.0 million during the same period in 2008. The increase in cash flows was primarily the result of the associated timing differences for collections of accounts receivable and payments of liabilities and changes in inventories. Cash flow from operations coupled with cash on hand at the beginning of the year were sufficient to fund capital expenditures, debt service, contributions to the Company's pension plans, and dividend payments. The Company did not utilize its revolving line of credit during the first nine months of 2009 or 2008.

Additions to property, plant and equipment were $1.8 million for the first nine months of 2009 compared to $1.7 million for the same period in 2008. Total capital expenditures for 2009 are expected to be in the range of $2 million to $3 million. There are no outstanding commitments for these estimated capital expenditures.

Total inventories as of October 3, 2009 were $23.9 million, compared to $30.8 million at year-end 2008. The inventory turnover ratio of 4.0 turns at the end of the third quarter was comparable to both the year-end 2008 ratio of 3.6 turns and the 3.9 turns in the third quarter of 2008. Accounts receivable decreased by $2.0 million from year end and decreased $6.9 million from the third quarter of fiscal 2008. The decrease is related to lower revenues in the first nine months of the current year. The average days sales in accounts receivable for the third quarter of 2009 at 49 days was slightly higher than the 46 days at the end of fiscal 2008, and slightly lower than the 58 days at the end of the third quarter of fiscal 2008.

Cash flow from operating activities and funds available under the revolving credit portion of the Company's loan agreement are expected to be sufficient to cover future foreseeable working capital requirements. See also Note F - Debt, included at Item 1 of this Form 10-Q.